Free content

J.P. Morgan is recommending clients buy Korean won puts/dollar calls to capture volatility as the won sinks lower against the dollar, following a slump in the global technology sector. "The best thing to do is buy outright volatility," according to Louis Cucciniello, head of options in the Lion City. "Now's not the time to get fancy," he added. Cucciniello recommends buying volatility through options and avoiding using structures, such as call spreads, that would limit the upside potential.

French rail operator SNCF has entered a cross-currency interest-rate swap to convert a USD200 million fixed rate bond into a euro-denominated synthetic floater. Mizuho International, formerly known as IBJ International, was the bookrunner and swap counterparty. Frank Toulouze, director in primary and structured finance at Mizuho International in London, said in the swap SNCF pays six-month Euribor and receives the 4.81% coupon on the bond. Six-month Euribor was 3.55% on Tuesday. The swap matches the five-year maturity of the bond.

Stamford, Conn.-based Citizens Communications plans to tap the interest-rate derivatives market for its first use of any type of derivatives. Don Armour, treasurer and v.p. of finance, said the company has recently started discussions with several investment banks about entering fixed to floating interest-rate swaps to hedge interest-rate risk on part of its USD4.25 billion debt portfolio. About USD3.5 billion of the debt was raised over the last eight months through two separate bond offerings of USD1.75 billion each. He declined to name the banks.

Introduction

Steven Goldstein, president of TradeWeather.com, an on-line weather derivatives company, is among the thousands still unaccounted for following the Sept. 11 terrorist attack on the World Trade Center in New York. Goldstein, who launched Tradeweather.com in 1999, moved into the North Tower of the WTC about three weeks ago. The move followed Cantor Fitzgerald's acquisition of the company which was incorporated into the broker's emissions trading group, according to a market official. Cantor occupied floors 101-105 in the North Tower. Officials at Cantor did not return calls.

One-month euro/U.S. dollar implied volatility fell 2% last week as traders concluded that the greenback will hold its value because the terrorist attacks in the U.S. will impact Europe as much as the U.S. One-month vol fell to 12% Thursday from 14% the previous week and one-year vol fell to 12.6% from 13.3% Tuesday. Proprietary traders selling one-month and shorter-dated euro calls/dollar puts drove the fall in volatility. Most of the options were at-the-money with spot fluctuating around USD0.9150 throughout the week. The selling of euro calls caused the one-month 25-delta risk reversal to fall to one vol point in favor of euro calls Thursday from two vol points the week before. Traders were selling options because the forecast fall in the dollar against the euro did not materialize and option holders were losing money through time decay. Traders said volumes have not yet returned to the levels that they were at before the terrorist attacks in the U.S.

Peter Colvin, senior v.p. and Asian regional head of corporate distribution at ABN AMRO in Singapore, resigned last week. "I'm going to Queensland," Colvin said, adding that after 15 years at the bank it is time to take a break. He has no immediate plans to reenter the business.

Banc of America has hired Dik Blewitt, chief strategic officer at creditex in New York, as a managing director in its structured credit products group. Blewitt said he is structuring credit products for pension fund and insurance clients in the U.S. The appointment was a strategic hire by the firm rather than part of an expansion of the department. "It is a homerun in terms of opportunities," he quipped, referring to the firm's large balance sheet and global client base.

Merrill Lynch has moved Ken Chang, co-head of Asia Pacific equity derivatives research in Hong Kong, to Tokyo as the new head of Japan and Asia Pacific equity derivatives strategy. He replaces Benjamin Bowler, managing director and head of U.S. equity derivatives research in New York. Bowler relocated to the New York office to replace Steve Kim, global head of equity derivatives research, who recently moved to Credit Suisse First Boston (DW, 6/8). Chang reports to Michael Maras, global head of equity derivatives research at Merrill in London. Maras said Todd Kennedy, co-head of Asia Pacific in Hong Kong, is now head of the department reporting into Chang. Chang said he is adding an additional researcher this month to the team of four in Tokyo, but declined further comment.

Axia Energy Europe expects to close its first stream flow derivative deal in Europe by the fall. Bill Gebhardt, director of weather derivatives in London, said preliminary talks started with hydroelectric power players a couple of months ago about the derivatives, which pay out if water flow is below a predetermined number of cubic meters per month. It has taken until now to get deals in place because risk managers needed to be educated about the products, he added.

ABN AMRO plans to hire fixed-income derivatives and credit products salespeople to boost its London and New York teams. Nigel Fox, global head of derivatives marketing in London, said the salespeople will be focused on selling to the hedge fund community. He added the beefing up was part of the bank's commitment to grow its derivatives capabilities, especially to the hedge fund community and that the bank wants to get the professionals on board as soon as possible. He declined further comment, so the current group size and hiring numbers could not be determined.

The Hong Kong branch of the Bank of China plans to beef-up its interest-rate desk in the coming months. Happy Chan, senior manager in Hong Kong, said the bank will attempt to build up interest-rate swap volumes and start offering caps and floors to customers by year-end. A combination of a merger of its 10 Hong Kong subsidiaries in October, which will give it access to a wider range of clients, and increasing client demand for interest-rate products has prompted the move.